I pulled off both tail light pannels and disconnected each of the harnesses. At first they looked exactly the same, but heard from a previous post that there might be some sort of a burning smell. I put my nose to both, and low-and-behold.... the passenger side one clearly smelled burnt! Under closer examination, you could see that pin #3 (ground) had some funky thing going on with the connector. I followed a modified version of the instructions found on this page: http://forum.e46fanatics.com/showthread.php?t=512469

1. Got a piece of 14 gauge wire and cut a piece about 5", stripped both ends
2. Cut a small relief into the brown wire (#3) and attached one end of the 14 gauge wire to it
3. Since the lighting panel did not have a place for a connector, so I traced pin #3 (from the female socket) to somewhere on the board in which I could wrap the wire around. (Found a hole that I was able to wrap the wire around)
4. Put some electrical tape on both ends of the connections to make things tight.

This re-grounding solved the issues:

1. Flickering Xenons - SOLVED!
2. Passenger side blinker would start fast and then return to a normal speed (barely noticeable, but if you drive the car a lot) - SOLVED!
3. Tail light out indicator - SOLVED!